What Warren Buffett looks for when investing

in #money5 years ago


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 When you think about investing, the first thing that comes to mind is this complicated world of stock markets, where no one seems to clearly understand what’s going on because every time when things seem to go in the right direction, we end up facing a financial crisis. But unlike everyone else, one man seems to know a secret formula when it comes to investing. Over the course of his life, he continuously made successful investments and he is considered by many as the greatest investor of all time but the question that interests me in the this video is, how Warren Buffet invests? Why does he prefer one company over the other? Which companies did he invest in and why? These are the questions we are going to answer. If you take a look at all the companies that Warren Buffet has invested in, you will find that they are connected one way or another even though they are in completely different industries. Since Warren Buffet is a long term investor, he looks for businesses that are simple and direct so that he can easily predict the future of the business. This is the product, these are the customers and this is why they are going to buy it and 10 years from now, they will keep buying it. That’s the kind of business that Warren Buffet loves.

Coca Cola

The second trait is will the customer buy the product again and why?This is extremely important because you don’t want the customers to only buy your product once, you want them to come back every day or every week and buy the product again. The 3rd component is the brand. Because people will buy from the company that they feel connected to and familiar with. Warren Buffet is one of the major investors in Coca Cola. In fact, he started investing in Coca Cola back in 1988, and his investments since then have grown by over 16 times. The business model of Coca Cola is absolutely simple. The brand name is so powerful that out of 20 or 30 soft drink options that you find in the store, most people would probably pick Coca Cola without hesitation. 1.8 billion cans are sold every single day. If the profit margin of the company was a single penny out of every can, that’s 18 million dollars a day, or 6.5B a year. But with such a powerful brand, they can charge more than a penny for every can.  

Gillette & See's Candies

Lets take a look at another example. In 1989, Buffett invested 600 million dollars in Gillette. The company that makes razors. If you take a closer look, Gillette holds the exact same position in its industry as Coca Cola holds in beverages. Regardless of what happens, people will still have to shave. Even a little kid will understand their business model: this is what the product does and this is why people will keep buying it. And if you ask people to name a razor brand, 90% of people won’t be able to mention any other brand beside Gillette. 15 years from now, people would still have to shave. The exact same theory repeats with See’s Candies. In fact, it has been one of his best investments ever. Even though the company wasn’t super profitable compared to Coca Cola or Gillette, it had an extremely strong brand. Buffet realized that people don’t usually buy candy for themselves but as gifts for others. So people would keep coming back for Christmas, Valentine’s day, birthdays etc. So, he acquired the company in 1972 for 25 Million dollars when it was making roughly 4 million dollars in profit. Since then, See’s profit increased 20 times over the next 35 years. In 2007, it made a profit of 82 Million dollars and if you take a look at other businesses that Buffet has invested in, you will find that there are pretty similar to these ones. 

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